Telefónica continues to dismantle its presence in Latin America. It has already divested operations in Peru, Argentina and Uruguay, in some cases at low or even symbolic prices, in order to reduce debt and refocus. Chile is one of the last relevant pieces in the region to remain in its portfolio, but it does so in an environment that combines operational deterioration, competitive pressure and strategic restrictions. Its permanence seems more of a burden than a gamble.

The Chilean telecommunications market is going through a stage of structural fragility. WOM, which promoted an aggressive pricing policy and accelerated expansion, ended up in Chapter 11 after its controller decided not to capitalize further losses. VTR, meanwhile, managed to avoid a similar path, but only thanks to a debt conversion that gave operating control to América Móvil, relegating Liberty Latin America to a marginal participation. Entel remains the operator with the best financial health, with investment capacity and a clean balance sheet, although this does not exempt it from operating in an environment where structural profitability has been eroded.

Telefónica Chile is in a complex financial situation. As of March 2025, its revenues fell 6.5%.% year-on-year, it again reported operating losses of more than Ch$31 billion, and its operating cash flow was negative by Ch$128 billion. At the same time, it increased its financial indebtedness to $1.28 billion (equivalent to some US$1.35 billion), a figure that includes an international bond for USD 500 million500 million international bond, which today trades at around 60.0 and a rate of 12.9%. Although there was a technical rebound to 65 cents after the Subtel authorized Verizon to operate in the Chilean market, the absence of a real offer caused the optimism to fade. And without a real catalyst, the bond could remain under pressure.

Any sale process - total or partial - will have to face two major obstacles: the regulator and the capital structure. On the one hand, the National Economic Prosecutor's Office (FNE) has been particularly active in telecommunications concentration operations. Suffice it to recall the Entel-Nextel case (2014), the Claro-VTR merger (2022), or the attempted absorption of GTD by Entel, which did not prosper. Although it is not possible to state with certainty that the FNE would block a transaction in which a local player buys Telefónica, it is clear that it will focus its attention on any operation that implies increasing market share in a highly concentrated sector with entry barriers.

On the other hand, the buyer will have to define what to do with the existing debt. Telefónica S.A., since Madrid, has been emphatic in avoiding disorderly defaults in its subsidiaries. And although a spin-off of assets, sale by parts or even a renegotiation of liabilities cannot be ruled out, any path will involve complex contractual and strategic discussions. International creditors are not an irrelevant player, but their involvement will depend on the type of transaction, the acquiring entity and the legal structure of the transfer.

As for potential buyers, several names have been mentioned. Verizon has generated the most attention, especially after receiving a spectrum concession from Subtel in 2025. However, it has not so far submitted a concrete offer. Another player with capacity and regional presence is Millicomwhich operates in Central and South America under the Tigo brand. Its track record as a regional operator makes it a plausible candidate, although no specific interest in the Chilean operation has been publicly disclosed. What is certain is that Telefónica has been looking for a way out for months, and the interested parties have not yet made a definitive move.

The paradox of Telefónica Chile is evident: its assets have value, its brand is recognized and its infrastructure is relevant, but the competitive environment and its financial structure make it unviable without a profound reconfiguration. It is not bankrupt, but it cannot continue to operate indefinitely in this context. If it does not find a way out soon, the deterioration will continue to accelerate; and if the exit comes, it will not be without friction.

The clock is ticking. Telefónica must resolve its future in Chile, and every day that passes without a buyer, without a structure and without a plan, reduces its margin. The operation cannot be sustained indefinitely, and the market knows it.

Cristián Zañartu
Latam Fixed Income Trader - Money Desk